How the iPhone 4 Will Change Smartphones

By Dan Hope |
June 8, 2010 07:23am ET

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Now that Apple has announced the latest version of the iPhone, it's
important to take a look back at how the iPhone and the smartphone
market in general have changed. It's only been a year since the iPhone
3GS was announced, and yet the smartphone landscape has changed
dramatically in that time.

To be honest, the iPhone
3GS wasn't actually a huge improvement to the iPhone line. There were
very few new features compared to the iPhone 3G from a year earlier.

"It was really just a speedy upgrade from the 3G. I don't view the
3GS as the most technologically advanced cell phone out there," said
Michael Morgan, mobile devices analyst for ABI Research, in an interview
with TechNewsDaily. "That being said, it did bring new things to the smartphone
market. It showed the old guard that software is very important to a
handset and there is more revenue to have besides what they get from
selling the hardware."

Morgan is referring, of course, to the biggest change in the
smartphone market over the last year: the emphasis on apps. The iPhone
has had apps since the beginning, but it has only been recently that
other manufacturers have tried to catch up with their own app stores.

"It's the paradigm shift from 'cell phone' to 'computer in your
pocket.' It's all about the software
and apps," said Gene Munster, senior research analyst with Piper
Jaffray, in an interview with TechNewsDaily.

That paradigm has been quite visible over the last year as iPhone
apps have brought in significant revenue and other smartphone makers
rush to create their own app stores. So far, Android is the closest in
competition behind the iPhone, with over 50,000 apps (the iPhone has
nearly 200,000 apps). As Morgan points out, those apps make the iPhone
more than a gadget – it's an "ecosystem."

"The biggest change in smartphones has been that smartphones are no
longer just about the product. It's about the ecosystem. The iPhone is
an ecosystem, so you need an ecosystem to take it on," Morgan said.

One of the other big
impacts the iPhone had on the smartphone market was making the
touchscreen a must-have feature. Munster ranks the touchscreen right up
there with apps as one of the two biggest influences on the smartphone
market recently. When the iPhone first came out, a touchscreen was a
rare and prized feature; now it's de riguer for any smartphone.

Well, almost. RIM, maker of BlackBerry smartphones, is still
technically the king of smartphones, as far as market share, but it
continues to skirt the touchscreen movement. BlackBerry phones are also a
perfect illustration of another major and recent shift in smartphones.
BlackBerry was known as a business powerhouse, which is partly why RIM
dominated the smartphone market. But as Morgan points out, a huge
innovation in smartphones has been changing the intended audience.

"Apple introduced consumers to the smartphone, whereas before it was a
more business-oriented market. The consumer side is much larger than
the business side, which means more revenue. Apple's main innovation was
more around business models than technologies. It has been
understanding the new way to do business with the smartphone market,"
Morgan said.

Without a doubt, the past year in smartphones has been the year of
Android, Google's smartphone operating system. It was similarly aimed at
consumers and has flourished because of that. Though released in 2008,
Android has only gained traction in the smartphone market within the
last year.

"The gap is closing between Android and iPhone as the number of
Android handsets explodes. Android is affecting the iPhone market, and
Apple can't deny that [Android] is competitive. Android handsets are
everywhere, on every carrier and at every price point. You can't help
but consider Android if you're looking for a smartphone," Munster said.

It's that recent explosion of handsets that has made Android
a serious contender to the iPhone and one of the driving forces in
smartphones over the last year. By some estimates, it has overtaken the
iPhone in sales, perhaps because it offers an alternative to the Apple
iPhone's "walled garden."

"Android is the opposite approach [from the iPhone]. It's built
around a sense of community and a consumer-side focus, and it has
greater distribution potential than the iPhone right now. Android is the
first legitimate alternative to the iPhone," Morgan said.

Of course, with the new iPhone 4G announced by Steve Jobs today, it's
important to remember that the smartphone market will continue to
evolve.

Many experts agree that video will become even more important,
especially high definition video. The higher resolution of the iPhone 4G
screen and the extra camera are evidence of this. Munster thinks that
the biggest impact of the iPhone 4G on the smartphone market will be
video conferencing.

"Video conferencing will become a standard feature, and there will be
a debate over whether people really want it or not. But I think more
people can use it than we think," Munster said.

Morgan points out that this emphasis on video has a significant
vulnerability, though.

"Streaming HD [video] on 3G cannot be that great of an experience.
Once [4G] hits it will be a much better experience, but that also comes
with massive growth in data usage, which could hamstring the movement.
Plus, I don't know if I'd want to stream HD with a 2GB plan," Morgan
said.

The very data caps that Morgan refers to will also become a major
point of contention between smartphone users and providers. AT&T
just nixed their unlimited data plan, instead offering a plan with a
2GB cap. Rumors indicate other carriers are considering a similar move.
With a device such as a smartphone that is being used for more and more
data-intensive purposes, this issue will eventually reach a boiling
point.

"99 percent of American consumers are not familiar with handling data
limits. Now they want to put a cap on that and people are going to have
to learn how to tighten their belts on data usage. They will have to
learn how to switch to Wi-Fi more often. That could take a little sheen
off of how good the iPhone is for users," Morgan said.

Even if you don't have a smartphone yet, don't think you can ignore
the problem.

"Eventually they will all be smartphones. There won't be any other
kind of phones," Munster said.

And finally, don't expect the battle between iPhone and Android to be
solved with the latest iPhone. Android continues to gain market share
and notoriety as a useful alternative to the iPhone.

"It will be the age-old battle of open versus closed. History has
shown that open systems (Android) traditionally beat out closed systems
(iPhone). But we only have a few years of smartphone history, so we
don't know if it follows the same rules as other technologies," Morgan
said.